Apple paid $2.6B lion's share of $4.5B Nortel patent acquisition

Apple supplied more than half of the $4.5 billion paid by a consortium of companies to acquire Nortel's patent portfolio, new regulatory filings show.

Apple revealed in its 10-Q filing this week that it paid about $2.6 billion in the Nortel patent sale, analyst Maynard Um with UBS highlighted in a note to investors on Thursday. That's a sum greater than the $2 billion Apple was rumored to have paid shortly after the deal was announced.

Other members of the consortium included Microsoft, Research in Motion, Sony Ericsson, and EMC. In late June, the companies won a bidding war to obtain more than 6,000 patents from Nortel, which filed for bankruptcy in January of 2009.

Previous claims from Reuters suggested that RIM paid $770 million for its share of the patent portfolio, while EMC allegedly contributed $340 million.

The consortium beat out Google, which had established the minimum bid for the auction with a starting offer of $900 million. A number of bidders were interested in the patent trove because of key inventions related to the high-speed long-term evolution 4G wireless standard.

Apple's 10-Q made no mention of the licensing agreement it entered into with rival Nokia in June. That deal includes ongoing royalties in addition to a one-time lump sum payment, both of which remain secret. But evidence in Nokia's quarterly earnings issued on Thursday suggests that Apple's share was no more than $600 million.

Beyond the Nortel patents and Nokia agreement, Um also noted that the 10-Q reveals Apple's warranty accruals were higher than claims for the fourth straight quarter. For the past year, Apple has "overaccrued" claims by about $600 million.

"While we recognize that accruals are for estimated future claims and that claims increased sequentially, we believe the company still has a healthy level of accruals unless claims were to increase significantly," he wrote.

If Apple were to reduce its reserves in the same magnitude it has with $600 million in claims over the past year, Um estimates the company would see a gross margin benefit of 200 basis points.

I personally suspect it was sort of a "tag team" agreement. Apple had decided the patents weren't worth more to them than around $2.5B, evidenced by their team building once the figures bid exceeded that. Microsoft had a figure in mind, as did RIM, etc. Once the Goggle bid exceeded the value to Apple, it was time for the next player on the team to step up and contribute. Then the next and the next as needed.

So, If Apple paid the most does that mean that they will benefit the most, or have exclusive rights to some of the patents?

Seems illogical for them to pay to benefit others in the consortium....

The patents are usually split up, and I believe Apple got all the patents relating to LTE.

Depending on how the deal went down, the members of the consortium may get a free license to use the IP of those patents that they did not outright buy. Any other companies that want to license the IP will have to pay royalties to Apple.

So, If Apple paid the most does that mean that they will benefit the most, or have exclusive rights to some of the patents?

Seems illogical for them to pay to benefit others in the consortium....

Google is an unusual competitor. Their only real business is advertising, but since advertising can be appended to almost anything and pays for everything they seem intent on offering free versions of all possible software, while at the same time working with hardware vendors to compete in that arena as well. So they're up against everyone, but with a business model that masks their true ambitions and intentions.

At the same time, they've proven themselves to be somewhat contemptuous of IP and copyright concerns, using their "free and open" mantra to paint themselves as champions of an egalitarian future while jealously guarding their actual sources of revenue-- the algorithms that undergird their advertising and page ranking business.

So you end up with an unusually broad coalition of businesses-- content owners, software vendors, online service providers, hardware manufacturers, IP rights holders, networking companies, etc.-- who have a vested interested in limiting the scope of Google's sprawl. Google wants nothing less than each and every digital transaction to pass through their servers, which is to say the entirety of modern life. It's not surprising that the rest of the world might take exception to that, and that stark reality might make for some strange bedfellows.